Harvard Pilgrim CEO Eric Schultz visited his downtown Hartford hub recently to meet with employees and brokers. Schultz says the not-for-profit insurer has made hard-won gains in building up its provider network, and sees potential for additional growth in its Connecticut customer base in the small- and large-group markets.

Despite major competitors like Aetna and Cigna teaming up with the likes of CVS and Express Scripts, respectively — deals some say could change the way healthcare is delivered in this country — Schultz said he still sees a role for regional insurers like his, which covers 1.2 million lives and recorded $3 billion in revenue across its four state-footprint in 2017.

"Honestly, we aren't at a point where we're reacting to it," Schultz said during a recent interview at his company's Connecticut headquarters at CityPlace II in downtown Hartford. "The best thing you can do is watch this in a very measured way so you know how to best compete, either as an innovator or a fast-follower."

Harvard Pilgrim, a not-for-profit health insurer based in eastern Massachusetts, has been around for 50 years, but it's an upstart in the Connecticut market, launching sales here in the summer of 2014.

Its Connecticut book of small- and large-group business has grown since then, but Schultz said he's well aware his company is a small regional player compared to the likes of Aetna, Anthem and Cigna — companies with large market shares and access to capital to make massive deals.

"There will always be important opportunities for regional local insurers and providers over the long haul, so that's how we see it," Schultz said.

Insurance mergers aren't the only thing that could affect Harvard Pilgrim's business. Healthcare providers also continue to make big moves of their own.

At least 10 hospital mergers and acquisitions have been announced in Connecticut since the latter half of 2015.

The pace picked up as Harvard Pilgrim was preparing to enter the Connecticut market, said Schultz, who lived in this state for over 30 years and who has worked in health care and insurance for 35 years.

"It was one of the most rapid consolidations I've seen in a market," he said.

What's resulted here is a "relatively short list of large systems," the largest of which are Yale New Haven Health, Hartford HealthCare and Trinity Health of New England.

He said hospitals are trying to bolster their geographic position and improve their ability to recruit and retain the best physicians.

The larger systems also give hospitals better leverage when negotiating with insurers, he said.

That has led to contentious negotiations in some cases. Hartford HealthCare and Anthem, for example, last year had a very public contract standoff that lasted seven weeks before they eventually agreed to a new deal.

Schultz said the tables have turned a bit on insurers, which went through a similar consolidation wave about 20 years ago.

"The real question now is: What will the healthcare systems do to effectively use their size for ultimately creating a better healthcare system?" he said.

Growth, hurdles to entry

Like in most industries, it's tough for a health insurer to target a new geographic area.

It has to build relationships with hospitals and doctor groups, and also contend with claims volatility that comes with having a relatively small number of customers.

"If you go into a state and don't have many lives, that's a big negative," Schultz said.

But he said things are starting to come together for Harvard Pilgrim in Connecticut.

The company now has about 32,102 fully insured members in the state enrolled in small- and large-group health plans, plus an additional 1,420 enrolled in self-insured plans it administers.

By comparison, Anthem — the state's largest health insurer — had 1.2 million members in all types of health plans as of Sept. 2017, followed by UnitedHealthcare (529,000 members), ConnectiCare (497,117 members) and Aetna (497,117 members), according to Hartford Business Journal's Book of Lists.

Schultz said his team has worked for nearly four years to build up its network of providers, which he thinks is on par with its competitors. That's important because consumers often want to see more doctors in a coverage network — even though that can increase costs — to ensure they can access their preferred physicians.

Jason Madrak, vice president of Harvard Pilgrim's Connecticut market, said that has helped the company pursue new business.

"We're laddering up continually now that we have this mature network and a nice array of products," Madrak said. "We're starting to get that mid-market growth, 100 to 500 lives, and there's quite a few of those types of businesses here in the state."

Shelly Sweatt, vice president and general counsel of Newtown-based benefits broker TR Paul Inc. and president of the Connecticut Association of Benefit Brokers, said she has seen first-hand the progress Harvard Pilgrim has made building its network here.

TR Paul has offered Harvard Pilgrim's policies since the insurer debuted in Connecticut, and Sweatt recalls that its list of in-network doctors was small at first.

"I would say that definitely was their biggest hurdle initially," Sweatt said. "I do believe their network has hit a certain critical mass."

At least for some clients, she said, Harvard Pilgrim's not-for-profit status could be a deciding factor. "I think that sets them apart," she said.

Madrak said that having a more mature network also means Harvard Pilgrim wants to start shifting toward more value-based contracts that offer providers financial incentives to produce better health outcomes.

It's something Harvard Pilgrim has done extensively in its home state, where about 70 percent of its contracts include doctors or hospitals taking some level of financial risk.

"I think we're at the point now [in Connecticut] where these types of conversations are happening," Madrak said.

Small group outlook

The small group insurance market is no stranger to rate hikes.

One major cost for some insurers, including Harvard Pilgrim, has been the Affordable Care Act's risk adjustment program, which forces carriers with a higher percentage of healthier customers to pay insurers with sicker patients, with the aim of stabilizing premiums across the broader population.

It was that very program that helped put another not-for-profit health insurer in Connecticut, HealthyCT, out of business in late 2016, after a $13.4 million risk adjustment payment jeopardized its financial position.

Harvard Pilgrim has cited the program as a driver of its financial losses over the past several years, as well as a reason it has asked state regulators for rate hikes, including a 17.3 percent average increase on nearly 12,000 Connecticut small group customers for the 2018 plan year.

Schultz said tiered network health plans — which steer customers toward a specific tranche of usually lower-cost providers — have more potential to keep costs down, and he is also optimistic about the evolution of value-based contracting.

But federal policy will play a key role in the prices small companies pay for insurance, Schultz said.

He has his eye on several things that concern him, including the effective repeal of Obamacare's individual coverage mandate late last year, and proposed federal rules that would allow states to permit insurance policies that don't adhere to Obamacare's coverage requirements, which tend to increase premiums.

Such developments could split off healthier portions of the risk pool from sicker populations, driving up costs for the latter, Schultz said.

"People like the concept of it, but it will split up that small-employer market, and some (employers) would end up seeing rate increases," he said.

Correction: The original version of this story gave an incorrect building name for where Harvard Pilgrim's Hartford operation is based. The company leases space in CityPlace II.